Problem:
Fun Land is considering adding a miniature golf course to its facility. The course would cost $55000, would be depreciated on a straight line basis over its 4-year life, and would have a zero salvage value. The estimated income from the golfing fees would be $35000 a year with $6000 of that amount being variable cost. The fixed cost would be $7000. In addition, the firm anticipates an additional $10000 in revenue from its existing facilities if the course is added. The project will require $5000 of net working capital, which is recoverable at the end of the project.
Requirement:
Question: What is the net present value of this project at a discount rate of 11 percent and a tax rate of 35 percent?
Note: Provide support for rationale.